The CVS Co-Payment: The Next Step in the Anti-Tobacco Initiative or an Anti-Competitive Practice?

In September 2014, CVS and Caremark, CVS Health’s pharmacy benefits manager, became the first major pharmaceutical chain to ban tobacco sales in all of its 7,700 stores. The company is moving forward with a plan to “improve public health and generate goodwill” among its customers. However, while their commitment to remove tobacco products from its shelves is admirable and a step in the right direction against cigarettes and other addictive products, CVS sacrificed a reported $2 billion in annual tobacco sales for this initiative. In an attempt to compensate for their financial damages, beginning in 2015, Caremark will require certain customers to pay an extra co-payment on any prescription filled at a pharmacy that sells tobacco products. The co-payment could be as high as $15 for some customers. Caremark currently works with Walgreens, Rite Aid, Target, Kroger, and CVS as a pharmaceutical benefits manager, responsible for processing and paying prescription drug claims. Of those, only CVS and Target are tobacco-free. With a start date of January 1, 2015, employers and Caremark-managed pharmacies would have the option of joining the tobacco-free network, and any of its customers that fill at a pharmacy not in the network would have to pay the additional co-payment. This action is meant to encourage other pharmacies in the Caremark network to join the tobacco-free network and ban tobacco sales in their store. Furthermore, CVS hopes that this initiative will drive business in their direction; individuals who do not want to pay an extra co-payment will leave their tobacco-selling pharmacy and come to CVS. The additional co-payment appears to be the answer to CVS’s financial losses since pulling tobacco-products from its shelves.

While CVS and Caremark are optimistic about the tobacco-free network, independent pharmacy groups and management companies have expressed concern and criticism over the plan and its implications. John Norton, a spokesperson for the National Community of Pharmacists, believes that Caremark must make consumers aware of smaller pharmacies that have not sold tobacco products for decades, so that consumers can make an informed decision when choosing a pharmacy. From the perspective of the smaller pharmacies, this seems to be a fair request. Smaller pharmacies already face numerous obstacles in being noticed over the bigger pharmacies like CVS and Walgreens. The new initiative will drive away even more clientele of the small business owner as consumers try to avoid the potential co-payment. Some are going further and calling the tobacco-free network “unfair competition” between big pharmaceuticals and the smaller companies that are struggling to survive in their shadow. Essentially, CVS and Caremark are driving customers away from other pharmacies and straight through their doors.

John Giampolo, President of the Independent Pharmacy Alliance of America, believes CVS’s actions will lead to “independent pharmac[ies]… scrambl[ing] to do their own marketing,” which will still not compare to the money and resources available to larger, corporate pharmacies. CVS has faced similar controversy in the past. Since acquiring Caremark in 2007, the Federal Trade Commission (“FTC”) has investigated CVS for using Caremark to push customers away from its competitors and to its own stores. The FTC investigated CVS and Caremark for antitrust violations, unfair business practices, and unfair competition allegations. However, in 2012, the investigation was closed, and no charges were filed. Nonetheless, CVS is stirring up controversy again with its new initiative. It can be argued that the company took a historic step in the promotion of public health and safety through its tobacco-sales ban. CVS and Caremark, however, may have diminished the goodwill it developed through its plan to enforce an additional co-payment on customers who use tobacco-selling pharmacies.

Sydney Mayer attended the University of Illinois at Chicago(UIC) for her undergraduate degree, double majoring in Political Science and French with Honors in both areas of study. Sydney hosted her own radio show at UIC, and was the Vice-President and Editor for the Honors College publication, OneWorld. She currently attends DePaul University College of Law. She is a Co-Vice Chair of Programming for the Health Law Institute (HLI), writer for the HLI newsletter, E-Pulse, and is a writer for the Journal of Healthcare Law.